Rock particles floating above terrain
It's definitely related to the modifiers, or clumping.
One option is to apply the modifiers, which seems to ground the rocks.  You might not want to do that.
The other thing seems to be Clumping.  If you set it to a positive value it seems to not float, but I think the clumping just pulls together the particles in space without regards to the modifier stack of the surface they're sitting on, unfortunately.  The only thing I could figure out that doesn't break the clumping was applying the subsurf and displace.